Oil Companies: The Search for Unconventional Sources Goes Into the Arctic

The black gold rush on the roof of the world accelerated on Saturday. Norway's Statoil ASA (NYSE ADR: STO ) signed a massive deal with Russian behemoth Rosneft in a venture that may require more than $100 billion over the next few decades. Specifically, the company aims to help Rosneft develop untapped oil resources in the Arctic, as Moscow struggles to gain a competitive advantage given declining oil production in Siberia. It's the third recent oil partnership for Rosneft. Reuters reports : "The agreement, signed on Saturday, provided a showcase for president-elect Vladimir Putin, serving out his final days as prime minister before a May 7 inauguration, and Deputy Prime Minister Igor Sechin, in charge of energy and industrial policy. As a legacy of their time in government, the three deals secure capital and expertise for a push into some of the world's potentially most energy-rich regions." The deal highlights a number of key issues for both oil companies and Moscow moving forward. To continue reading, please click here...

The black gold rush on the roof of the world accelerated on Saturday.

Norway's Statoil ASA (NYSE ADR: STO) signed a massive deal with Russian behemoth Rosneft in a venture that may require more than $100 billion over the next few decades.

Specifically, the company aims to help Rosneft develop untapped oil resources in the Arctic, as Moscow struggles to gain a competitive advantage given declining oil production in Siberia.

"The agreement, signed on Saturday, provided a showcase for president-elect Vladimir Putin, serving out his final days as prime minister before a May 7 inauguration, and Deputy Prime Minister Igor Sechin, in charge of energy and industrial policy.

As a legacy of their time in government, the three deals secure capital and expertise for a push into some of the world's potentially most energy-rich regions."

The deal highlights a number of key issues for both oil companies and Moscow moving forward.

Oil Companies' New Deals with Russia
First, Statoil was scrambling to find new ways to get involved in this push north among oil companies.

Royal Dutch Shell (NYSE: RDS) in March began contracting Finnish icebreakers to accompany them in test drillings in the Arctic. In February, TNK-BP, a joint venture between Russian tycoon firms and British energy giant BP (NYSE: BP), announced it will finish a drilling campaign in Yamal-Nenets, an Arctic region with up to 2.25 billion barrels of oil.

And in recent months, oil giants Exxon Mobil (NYSE: XOM) and Italy's Eni SpA (NYSE ADR: E) had been very active in working with Moscow to develop in these hostile, yet energy-rich regions.

Second, this is yet another massive deal that we've seen to develop in the Arctic that includes a sound political-risk strategy.

In the wake of Russia's slumping reserves and production in Siberia, the Kremlin has been looking for ways to incentivize producers to help Rosneft increase production. Tax breaks have been one way, but companies also want a little bit of insurance when they work with Moscow.

Just last month, Exxon and Rosneft agreed to begin finalizing their initial $3.2 billion Arctic deal that would require about $200 billion for joint projects in the next decade alone, and the development of 10 ice-proof platforms for the Kara Sea that would cost about $15 billion each.

The key feature of the Statoil deal is a strategy known as "hostage taking." Chris Helman at Forbesexplains:

"Importantly, the deal (like ExxonMobil's own pact with Rosneft) will protect Statoil from the risk of having any big discoveries expropriated by the Kremlin by requiring Rosneft to buy stakes in Statoil-led projects in Norway and elsewhere. Holding such "hostages" should give shareholders more confidence in bedding down with Putin."

The black gold rush will continue. The U.S. Energy Information Administration reports that as much as 22% of the world's undiscovered oil and up to 30% of its natural gas could be in the Arctic Circle alone.

There are 19 geological basins in the Arctic region, but only half of them have been explored.